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Indonesia gets investment status, but where’s the investment?

Indonesia starts the new year hopefully: it has been upgraded to investment status by one of the rating agencies. It’s no huge surprise; rating agencies tend to think quite short term, and short term, the indicators look good. The Financial Times is enthusiastic about what it calls a “demographic dividend” i.e. lots of young people. “Indonesia’s dependency ratio of workers to retirees is dropping from about 55 percent now to 45 per cent by 2025,” says the pink paper. What looks to the FT like “favourable demographics” looks to me like a collapsed family planning programme that will surely be problematic in the longer term.

But the paper’s David Pilling sees three other sorts of trouble: infrastructure, infrastructure and infrastructure. To that I would add pandemic corruption and the gaping absence of an independent judiciary, but I can’t disagree with the observation that there has been an underinvestment in ports and power stations. This little video was shot off a cargo boat “docked” at Lirang in Southwestern Maluku, at the sea border with East Timor (the grey land mass in the background of some of the shots is East Timor — a hazard for the users of cell phones because their powerful comms get passing boat passengers so excited about having a signal that we don’t clock that we’re paying international roaming charges). The scramble to get on board is a pretty good illustration of what many people on the remoter islands deal with if they want to go anywhere else, but since goods have to be offloaded in the opposite direction it also shows why petrol sells at more than five times the government-set subsidised price, and why it is so difficult to build up the other sorts of services that people want.

I’d agree, too, that more power stations are needed. I’ve learned that one of the easiest ways to judge the level of “development” of a town is to ask whether it has electricity 24 hours a day. Even when the answer is yes — and in this part of Indonesia it rarely is, below the sub-district (kecamatan) centre level — brown-outs are a norm; the sound of generators is almost as common in the evenings as the buzzing of mosquitos. I’m in two minds, however, about the underinvestment in roads. Building roads is the most palpable and most immediately achievable way for a newly-elected Bupati, the district heads who in this era of regional autonomy wield an immense amount of power, to show that he is delivering “development”. Building roads has lots of other advantages too. It’s an easy way to repay the favours provided by Chinese Indonesian businessmen (most of whom at least dabble in contracting) during the election campaign, not least because road building is easy to dole out: this 5 km stretch for PT Putra Wijaya, that 12 km block for the more generous PT Sinar Jaya. It involves contracting and buying stuff, so the possibility for kickbacks and skimming cash off budgets through overpricing is manifold. And it is endlessly repeatable. I’ve tortured my rented motorbikes over roads that are beginning to crack and subside at the beginning of the newly tarmacked stretch when the trucks are still out dumping asphalt at the far end of the same stretch, just a few kilometers down the road. They may as well have taken a can of black spray-paint to the existing
earth track.

In this age of transparency there’s often a “Papan Proyek”, a project information board, at the site of a new road construction project, so it’s possible to know what the formal budget is. If you added up all the stretches of road under construction in Indonesia, you’d probably get to a respectable sum. The problem is not an underinvestment in roads on paper, it is an underinvestment in well-engineered, sustainable roads in practice.